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NEW YORK (CBS.MW) -- In a stinging setback for federal antitrust regulators, a U.S. appeals court has cleared the way for Microsoft to ship Windows 98 this week, replete with a built-in Internet browser.

However, the Justice Department and several states are expected to file a broader complaint on Thursday in a last-ditch effort to stall the shipment of Microsoft's (MSFT)
MSFT, +1.33%
new operating system to computer makers a day later. Tuesday's ruling by the U.S. Circuit Court of Appeals for the District of Columbia said the government's case thus far was "very weak."

"The court order addresses a narrow aspect ... and our investigation is ongoing."

Justice Dept. spokeswoman Gina Talamona

The news could send shares of the Redmond, Wash., software giant higher on Wednesday. The ruling was issued after the stock market closed, with Microsoft shares rising 1 7/16 to 85 11/16.

"The court order addresses a narrow aspect ... and our investigation is ongoing," said Justice Department spokeswoman Gina Talamona. Still, the ruling is a serious blow to government antitrust lawyers, who've recently been stepping up efforts to enforce federal statutes. See

Ubiquitous Windows

Windows 98 is the latest version of Microsoft's popular operating system, a software program that controls the basic operations of 9 of every 10 desktop computers. The new version is set to hit the retail shelves at the end of next month, but without the fanfare surrounding the Windows 95 debut.

Federal antitrust regulators had tried to block Windows 98 on the grounds that it required computer makers to install Microsoft's Internet browser -- Internet Explorer -- as a condition to use the larger operating system. Justice Department attorneys said that was unfair to competitors.

A federal judge agreed with the Justice Department lawyers and issued a preliminary injunction that required Microsoft to give computer makers the option of installing Windows 98 without the company's browser. Microsoft said the two programs were too finely interwoven to be offered separately, and it filed an appeal.

Microsoft told the appeals court that the decision to include restrictions on the sale of Windows 95 "or any successor thereof"' were "plainly improper." It also said any delay of Windows 98 would hurt computer retailers and even the entire U.S. economy. Flanked by the heads of several technology companies last week, Microsoft chairman Bill Gates said, "Innovation is progress, and progress is growth for America."

Analysts didn't necessarily share Gates' view.

'Ridiculous'

"The self-righteous litany was ridiculous, in our view. Microsoft has never been an innovator or a pioneer, but a very adept marketing machine. Almost every product from MS-DOS to Windows to Internet Explorer was acquired or copied," noted BancAmerica Robertson Stephens analyst Bret Rekas.

There have been widespread reports that the Justice Department and attorneys general from 13 states would file another complaint against Microsoft on Thursday. However, Texas Attorney General Dan Morales said Tuesday his office may delay its case against Microsoft, in part because of the intense political pressure generated by software companies that make products that complement Windows.

"Over the past few weeks, my office has received letters from several officials of Texas' computer industry who have expressed concerns that the filing of a lawsuit against Microsoft may negatively impact their companies as well as the consumers of the state," Morales said. He said he planned to meet with those officials "over the next few weeks" before making a final decision.

Separately, Microsoft's legal difficulties widened on Tuesday when Sun Microsystems (SUNW)
SUNW, +1.34%
asked a U.S. District Court to push Microsoft to offer a version of its Windows 98 that works with Sun's Java software language.

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